Pedestrians walk past the Outift clothing store on 18th Street in San Francisco on Friday, October 10, 2014. Outfit is moving to new, larger location, just around the corner on Castro Street.

Pedestrians walk past the Outift clothing store on 18th Street in San Francisco on Friday, October 10, 2014. Outfit is moving to new, larger location, just around the corner on Castro Street.

Photo: Terray Sylvester / The Chronicle

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A shopper browses sale items at the Outift clothing store on 18th Street in San Francisco on Friday, October 10, 2014. Outfit is moving to new, larger location, just around the corner on Castro Street.

A shopper browses sale items at the Outift clothing store on 18th Street in San Francisco on Friday, October 10, 2014. Outfit is moving to new, larger location, just around the corner on Castro Street.

Photo: Terray Sylvester / The Chronicle

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Passersby peer into Kazan, a new restaurant on lower 24th Street in San Francisco on Friday, October 10, 2014. Kazan opens on Monday, serving sushi and Japanese tapas.

Passersby peer into Kazan, a new restaurant on lower 24th Street in San Francisco on Friday, October 10, 2014. Kazan opens on Monday, serving sushi and Japanese tapas.

Photo: Terray Sylvester / The Chronicle

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Passersby peer into Kazan, a restaurant set to open Monday on lower 24th Street in San Francisco, serving sushi and Japanese tapas. Businesses open and close at an increasingly high rate in the changing city.

Passersby peer into Kazan, a restaurant set to open Monday on lower 24th Street in San Francisco, serving sushi and Japanese tapas. Businesses open and close at an increasingly high rate in the changing city.

Photo: Terray Sylvester / The Chronicle

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Onur Ozkaynak serves a customer at his new restaurant, Oz Pizza on Castro Street. Oz Pizza opened on Saturday after an Escape From New York Pizza parlor vacated the space.

Onur Ozkaynak serves a customer at his new restaurant, Oz Pizza on Castro Street. Oz Pizza opened on Saturday after an Escape From New York Pizza parlor vacated the space.

Photo: Terray Sylvester / The Chronicle

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Pedestrians walk past the Outift clothing store on 18th Street in San Francisco on Friday, October 10, 2014. Outfit is moving to new, larger location, just around the corner on Castro Street.

Pedestrians walk past the Outift clothing store on 18th Street in San Francisco on Friday, October 10, 2014. Outfit is moving to new, larger location, just around the corner on Castro Street.

Photo: Terray Sylvester / The Chronicle

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Taking care of business in S.F.’s high-turnover climate

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San Francisco is a city of change, and perhaps nothing reflects that more than its high rate of business turnover.

Nearly 13,000 businesses will close up shop or move this year and more than 18,000 will open, up from about 1,300 closures and 4,000 openings or moves in 1992, according to a new report prepared for the Board of Supervisors. Between 1992 and 2011, business closures and relocations have risen by 884 percent, the analysis found — and if current trends hold, the rate of change will continue to grow.

The trend is particularly troubling for independently owned neighborhood businesses that have long given San Francisco its unique flavor, said small-business experts and Supervisor David Campos, who commissioned the report by the Board of Supervisors’ budget and legislative analyst. Historically, Campos said, those businesses have played a large role in shaping neighborhood character and setting San Francisco apart.

The report doesn’t shed light on why there’s such massive influx or which types of businesses are closing. But City Hall leaders and business experts say it reflects what they’re hearing anecdotally about high real estate prices pushing small businesses out and the churn that many longtime residents have noticed in their neighborhoods.

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Increasing change

“A picture emerges of a lot of flux in the business sector,” said Fred Brousseau, the report’s author. “It really does show that the rate of change has increased over time — if you look at a 20-year span, you really see that the numbers just keep going up.”

Longtime fixtures aren’t immune to the trend: Brousseau estimates that as many as 4,000 established businesses, or those open for more than five years, will close shop in 2014. And the report notes that while both openings and closures have climbed steadily over time, the rate of closures has increased far more than the rate of openings.

It highlights the increase in commercial property values, which have risen by more than 250 percent since 1999.

“I think that the report confirms what we have suspected, that the affordability crisis ... is definitely impacting commercial properties,” said Campos. “It confirms the anecdotal information we have been hearing from small businesses.”

Turnover isn’t entirely a bad thing, said Caroline Rooney, who heads up research for Cushman & Wakefield commercial real estate in the Bay Area. She noted that some of the closures or moves could be related to companies expanding or moving to better locations.

“More than ever, San Francisco is highly cyclical and highly volatile,” she said. “That is what makes it dynamic — there is tremendous young energy and entrepreneurial spirit pushing rapid change. It could mean retailers moving off of Fillmore Street to a lower-cost area. Maybe a company is upgrading. Maybe they want to be closer to clients. Maybe they are moving into a different neighborhood to better compete for talent. There are positive and negative reasons that cause companies to move.”

While change is normal, Campos said he is concerned about the closure of multi-generational — even iconic — restaurants and retailers that bring home the current volatility to average city residents.

The Chronicle reported a few weeks ago that two city institutions, Empress of China and Lombardi’s Sports, were closing. A number of drinking establishments — Club 21, the Elbo Room and the Endup — face uncertainty as their buildings go on the market or their landlords seek higher rents.

In an effort to conserve some of these businesses, San Francisco Heritage is working with Campos to create a registry of businesses that have been around for at least 30 years and have contributed to their neighborhood. The registry is the first step to a conservation program that could provide landlords with financial incentives, including tax breaks, for retaining what are called legacy businesses.

Regina Dick-Endrizzi, executive director of the city’s Office of Small Business, agreed, saying that many of the longtime businesses currently facing challenges have weathered previous economic ups and downs and “kept our neighborhood commercial corridors vibrant and unique” — and stable.

“They are like anchor tenants in terms of attracting other businesses and bringing people to these corridors,” said Dick-Endrizzi.

The hot real estate market is making things especially challenging for small businesses, Dick-Endrizzi said: She is regularly told about 30 to 50 percent rent hikes during lease renewals — “which is pretty significant.”

San Francisco Small Business Commissioner Kathleen Dooley has lived those pressures. For 25 years, she had a flower shop on Grant Avenue. But the combination of rising rents, recession and low-cost alternatives offered by chains like Trader Joe’s and Safeway caused her to shut down. Now she freelances, creating flower arrangements for restaurants, weddings and parties.

High-end operations

“Rents are no longer affordable for the average neighborhood-serving businesses,” she said, pointing to dry cleaners, hardware stores and corner grocery markets. “The basic needs have been replaced by more and more restaurants, bars and expensive boutiques. You kind of have to be expensive because the rents are so high.”

In North Beach, Rossi’s Market closed a decade ago and nearby Tower True Value hardware store a few years later.

“In North Beach we have a bazillion restaurants but no hardware store and no grocery store,” she said. “We have to leave the neighborhood to buy a nail.”

Franck LeClerc, who owns Café Claude downtown and four other bistros, said the rate of restaurant openings is mind-boggling.

“In May, 25 new restaurants opened,” he said. “When you open that many restaurants, when you have that many open seats, how can you feel at ease? Do we have the demographics to support all these new places? I think 2015 is going to be an interesting year. For me it’s a given that a lot of businesses are going to close.”